The younger generation wants more than just a well made product. With a shift in purchasing power, luxury retailers are forced to pivot sales strategies to entice Gen-Z consumers through experiential shopping.
A recent economic projection by Bain & Co. in collaboration with the Fondazione Altagamma suggests that luxury sales are expected to grow by 2 to 4 percent this year, following a decrease in profits in 2017.
However, the report also states that by 2025, 45% of the luxury goods market will be comprised of millennials. Unfortunately today’s current brand standard business models do not align with millennial spending patterns or expectations. How will the industry change to support these new demographic demands?
Historically, the goal of a luxury brand is to create a product that is viewed as superior and economically exclusive. Today, though, millennial shoppers are looking not just for quality but also brand ethical transparency and authenticity. These factors are the deciding traits for purchases of this demographic.
“[Millennials are] the first generation with radically different behaviours and attitudes towards all consumption and lifestyle to the generation before,” co-author of the Bain study Federica Levato stated.
This shift in millennial consumer priority will no doubt spur change within the luxury brand economy. As e-commerce surges, the demand for brick-and-mortar stores decreases, additionally altering the wholesale model. Luxury brands have been closing stores worldwide and instead opting for select flagship shops that are more experiential rather than retail. In an age of Instagram and Snapchat, stores are more display showrooms poised to drive online sales rather than carry tangible merchandise.
Branding studio Base Design echoes this pattern. “It is more important than ever to have fewer physical stores that offer heightened experiences that can be shared,” Base Design partner Geoff Cook said. “The stores should not ‘show and tell’ but bring like-minded people together.”
The emphasis on brand interactive elements has been exemplified by recent campaigns from Rebecca Minkoff, Hermes, and Swarovski.
Rebecca Minkoff integrated an omni-channel strategy within stores to integrate their online presence into physical shops. Customers can select items to try on and be prompted with complementary products from the website, with the option to select other sizes. The personalized shopping experience creates a subtle shift in the average in-store retailer.
Similarly, Swarvoski uses technology to allow customers to view products. The brand offers a shopping app for consumers to browse and purchase Atelier Swarovski interior decor line home accessories. The app utilizes virtual reality to give 360-degree views of the items for sale.
Hermes instead created an in-store experience akin to a museum visit. In 2016, Hermes opened a series of HermesMatic Pop-Up stores in four international cities–Strasbourg, Amsterdam, Munich, and Kyoto. The laundromat-themed stores allowed customers to dip dye their own scarves in “laundry machines” or select from limited edition scarves designed solely for the pop-up itself. This hands-on approach was an event, not just a storefront.
Similar luxury experiential stores are expected to open to attract millennial shoppers. “Millennials are more focused on experiences which inherently incorporate what they value: sharing time together, transparency or realness, and perhaps learning something or doing good along the way,” Cook explained. “These values also extend to product, in so much that there is a personal connection to it that becomes an extension of themselves or a conversation piece”
Millennials’ shopping patterns and lifestyle demands are greatly changing the way luxury brands approach consumers.